The publication of an alleged technical directive regarding the weight of the shares of the major banks in the banks index ignited a battle between the stock exchange, which today determines the composition of the indices, and the Securities Authority. The Stock Exchange today issued a harsh response to the decision of the Securities Authority, which requires the managers of mutual funds to reduce the weight of Poalim and Leumi shares in funds that follow the Banks Index 5 from more than 30% to 22.5%.
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“The decision of the Securities Authority, as published this morning, according to which the managers of mutual funds will not be able to follow the Tel Aviv Banks Index, is an arbitrary, unreasonable and unreasonable decision, which will undoubtedly harm the investing public, fund managers and the capital market as a whole. This is another severe blow to the mutual fund market, following the reform in the industry that destroyed a large-scale value and all this during the corona crisis that requires maintaining stability and not unnecessary shock in the market, “said the stock exchange, managed by Itai Ben Zeev.
The stock exchange added: “The decision was made retroactively, after more than twenty years in which the index was calculated and published and is a necessary benchmark for the capital market. We emphasize that the total value of the assets that follow the index is over 7.5 billion. The decision also contradicts the fact that the Securities Authority itself approved the index rules, which are enshrined in the stock exchange’s guidelines. “
The sharp reaction was announced after it was announced this morning that the Securities Authority, headed by Anat Guetta, has issued an order to the managers of mutual funds to reduce the weight of the shares of the two major banks Poalim and Leumi in funds that monitor the banks index. Currently, the weight of these two shares in the index is over 30% each, while the Authority states that the weight of these shares in the funds will be at most 22.5%.
This means that the managers of the index funds will have to make adjustments in the funds that follow the banks’ index and sell shares of the two large banks, and at the same time increase exposure to the medium-sized banks. The scope of the sale is expected to be NIS 800 million for each of the Poalim and Leumi shares. Following the announcement, Poalim and Leumi shares fell more than 1% today, while the shares of Mizrahi Tefahot and International banks climbed more than 2% (as of noon).
The Authority’s decision stems from the fact that in April the temporary provision that allows ETF managers to monitor the Tel Aviv Banks Index in its current composition will expire. According to the law, ETFs and imitation funds may not hold exposure higher than 25% of the fund’s volume in certain securities. As part of the reform in the ETF industry, which came into force two years ago, a temporary relief was granted that allows for higher exposure.
The Securities Authority decided not to extend the directive, as in their view the banks’ index in its current composition is unusually concentrated even in a global comparison, and a better level of diversification must be ensured, so they formulated a balanced solution, which they say does not change the composition too dramatically.
The Securities and Exchange Commission rejected the criticism and said their move corrects a historical distortion. “We have established a moderate, balanced and applicable outline, which puts before its eyes the interest of investors in the capital market and, at the same time, provides the fund industry with an effective solution.”
The Authority accuses the TASE that its opposition stems from foreign considerations: To follow the strictest standards accepted in the world. “
The authority added that they would be happy if there was competition for the stock exchange in the field of indices: “The authority will not regret it, if following the required change, competition in the field of editing the indices will increase, in a way that increases the weight and presence of other index editors.”